International arbitration centres experiencing an 'unprecedented increase' in commercial disputes

Out-Law News | 08 Aug 2014 | 11:38 am | 3 min. read

Major international arbitration centres are reporting an "unprecedented increase" in the number of commercial disputes referred to them, with caseloads rivalling those recorded in the immediate aftermath of the financial crisis.

The number of cases referred to the London Court of International Arbitration (LCIA) last year reached a new high of 301 cases in 2013, up by 10% on the previous year and breaking its 2009 record of 285 cases, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com. Arbitration centres in Singapore and Stockholm have reported similar increases, while the International Chamber of Commerce (ICC) in Paris is expected to update its own figures later this month.

International arbitration expert Michael Fenn of Pinsent Masons said that the figures suggested that commercial disputes were continuing to emerge following the financial crisis.

"The disputes don't appear to be driven by issues arising in the banking sector itself – many of which are being resolved in the public courts – but instead highlight the continuing commercial pressure on corporates," he said.

"Where organisations in dispute might well, in the past, have reached a compromise to maintain their commercial relationships, the new economic normal means the gloves are off. Almost 20% of the claims brought in London requiring monetary relief had sums at issue worth more than $20 million. This isn't just about money, however: the numbers for London show a clear increase in claims for declaratory relief, where the correct interpretation of a contract is in dispute, and for specific performance," he said.

Arbitration is a system of formal dispute resolution for a final and binding decision from a neutral arbitral tribunal. It is often used as the primary means of dispute resolution by global businesses, including in disputes with sovereign states, as it is seen as more likely to be free from political interference and it allows for greater confidentiality and flexibility than open courts.

Recent disputes to have been resolved using international arbitration include energy giant Repsol's $5 billion settlement with the state of Argentina relating to the alleged misappropriation of its assets in the country, and an interim award made to Dana Gas to force outstanding payments from the Kurdistan regional government relating to gas field contracts. Last week, an arbitral tribunal sitting in The Hague issued the largest-ever arbitral award to former shareholders of the Yukos Oil Company in their dispute against the Russian Federation.

According to the figures, the LCIA experienced a particular increase in energy and resources disputes last year, accounting for 8% of the 301 cases referred to it. The number of oil and gas cases in particular more than doubled in 2013, from 22 to 45; the highest number of such cases in five years.

Energy disputes expert John Gilbert of Pinsent Masons said that the figures were "indicative of the changing shape of the global energy market", both in terms of London's status as an international dispute resolution sector and the increased regulation of energy disputes.

"Recent years have seen changing levels of demand, high crude prices and continued geopolitical uncertainty across a number of jurisdictions," he said. "These factors create volatility in the market which ultimately drives a surge in complex disputes across all industry sectors."

"Political neutrality is critical for the oil and gas industry. Operations span the globe exposing the companies to a range of challenging legal and political environments. London's reputation for providing confidential, impartial arbitration expertise has prompted the oil and gas and wider energy industries to increasingly turn to the LCIA," he said.

Fenn said that it was significant that the LCIA's case load more generally was continuing to increase "despite the continued emergence of other arbitral centres, such as Singapore and Dubai, let alone established centres in Paris and Stockholm".

"If, as expected, the ICC in Paris reports a similar increase, it will be safe to say we are seeing a truly global trend towards more disputes," he said.

Updated LCIA arbitration rules will come into force on 1 October and include guidelines on the conduct of counsel in arbitration. As it will become the first arbitral institution to implement such guidance, the new rules will help to distinguish the LCIA from its competitors, John Gilbert said.

"The new rules are designed to maintain London's pre-eminent position as a global hub for dispute resolution and we expect referrals to LCIA to continue to grow," he said.